Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Tuesday, February 28, 2012

Why the U.K.'s New Approach to Competition Compliance Makes for Good Enforcement

Posted by D. Daniel Sokol

Andreas Stephan (Univ. of East Anglia) explains Why the U.K.'s New Approach to Competition Compliance Makes for Good Enforcement.

ABSTRACT: There is still much to do in the United Kingdom to champion compliance so as to strengthen competition enforcement and deterrence. The OFT has taken the hardest steps in both recognizing the importance of compliance and acknowledging that the existence of an infringement should not render a firm's entire compliance program a failure. There are a limited number of competition authorities that are following a similar path, but it remains to be seen whether a progressive view of compliance becomes the norm in antitrust.

February 28, 2012 | Permalink | Comments (0) | TrackBack (0)

Product Market Synergies and Competition in Mergers and Acquisitions

Posted by D. Daniel Sokol

Gerard Hoberg, University of Maryland - Department of Finance and Gordon M. Phillips, University of Maryland - Department of Finance address Product Market Synergies and Competition in Mergers and Acquisitions.

ABSTRACT: We examine how product differentiation influences mergers and acquisitions and the ability of firms to exploit product market synergies. Using novel text-based analysis of firm 10K product descriptions, we find three key results. (1) Firms are more likely to enter restructuring transactions when the language describing their assets is similar to all other firms, consistent with their assets being more redeployable. (2) Targets earn lower announcement returns when similar alternative target firms exist. (3) Acquiring firms in competitive product markets experience increased profitability, higher sales growth, and increased changes in their product descriptions when they buy target firms that are similar to them and different from rival firms. Our findings are consistent with similar merging firms exploiting synergies to create new products and increase their product differentiation relative to ex-ante rivals.

February 28, 2012 | Permalink | Comments (0) | TrackBack (0)

Is Intent Relevant?

Posted by D. Daniel Sokol

Maurice Stucke (Tennessee Law) asks Is Intent Relevant?

ABSTRACT: The role of intent in federal antitrust cases has been characterized as “unsettled” and “controversial.” Many lower courts, scholars, and practitioners recognize that intent evidence is relevant in antitrust cases. But jurists and scholars oriented by neoclassical economic theory disagree.

Using the developments in the behavioral economics literature, this Article reexamines the relevancy of intent evidence in antitrust cases. The analysis is organized around two issues: First is intent legally relevant in antitrust cases generally and monopolization cases specifically? Second if intent evidence is relevant, for what purpose?

Intent evidence, this Article concludes, is relevant. The behavioral economics experiments confirm what many have long accepted: intent matters. Greed does not always motivate us. Greed is not necessary for a market economy to thrive. Competition need not be zero-sum warfare. But the literature has two important implications. First, intent may be helpful, but to a lesser degree than some courts and scholars assume, in assessing the likely anti-competitive effects. Second, intent evidence can be more important than courts may otherwise assume under neoclassical theory. People rely on intent when coding and punishing behavior as unfair and unreasonable, which in turn can promote a market economy and overall societal welfare.

February 28, 2012 | Permalink | Comments (0) | TrackBack (0)

Game complete analysis of symmetric Cournot duopoly

Posted by D. Daniel Sokol

David Carfe (University of California at Riverside) and Emanuele Perrone (University of Messina) offer a Game complete analysis of symmetric Cournot duopoly.

ABSTRACT: In this paper we apply the Complete Analysis of Differentiable Games to the classic Cournot Duopoly (1838), classic oligopolistic market in which there are two enterprises producing the same commodity and selling it in the same market. In this classic model, in a competitive background, the two enterprises employ, as possible strategies, the quantities of the commodity produced. The main solutions proposed in literature for this kind of duopoly are the Nash equilibrium and the Collusive Optimum, without any subsequent critical exam about these two kinds of solutions. The absence of any critical quantitative analysis is due to the relevant lack of knowledge regarding the set of all possible outcomes of this strategic interaction. On the contrary, by considering the Cournot Duopoly as a differentiable game (a game with differentiable payoff functions) and studying it by the new topological methodologies introduced by D. Carfì, we obtain an exhaustive and complete vision of the entire payoff space of the Cournot game (this also in asymmetric cases with the help of computers) and this total view allows us to analyze critically the classic solutions and to find other ways of action to select Pareto strategies. In order to illustrate the application of this topological methodology to the considered infinite game, several compromise decisions are considered, and we show how the complete study gives a real extremely extended comprehension of the classic model.

February 28, 2012 | Permalink | Comments (0) | TrackBack (0)

The Predictive Power of Merger Analysis

Posted by D. Daniel Sokol

John Kirkwood (Seattle U) explores The Predictive Power of Merger Analysis.

ABSTRACT: This article looks first at the process courts use to resolve merger challenges and finds that in the area of product market definition, merger analysis is reasonably strong. Market definition remains complex and subjective, however, and could be improved, or avoided altogether, through econometric techniques such as merger simulation. Judicial analysis of entry is much weaker. Courts ask whether the market is protected by entry barriers but rarely ask whether the barriers are high enough to make entry unprofitable. The article also examines the results of “marginal” mergers, mergers that would have been blocked if the government and courts had been somewhat more aggressive. Measured in this way, merger analysis is not seriously off target: the merger retrospectives find that very few transactions led to sharp price changes. They also find, however, that a large proportion of marginal mergers resulted in small price increases, which suggests that in appropriate cases, enforcement agencies and courts should be more willing to predict anticompetitive effects.

February 28, 2012 | Permalink | Comments (0) | TrackBack (0)

Monday, February 27, 2012

How Can One Distinguish Cartels from Legitimate Cross-Licensing Arrangements between Competitors

Posted by D. Daniel Sokol

Tabrez Ahmad, College of Law Alliance University and Ankur Mishra, KIIT University, KIIT Law School ask How Can One Distinguish Cartels from Legitimate Cross-Licensing Arrangements between Competitors.

ABSTRACT: Cartels are a focus of concern for many reasons. Cartels cause a locative inefficiency by reducing production in order to raise market price. This forces consumers to pay significantly more money for products, from luxuries like high end art to necessities like vitamins and pharmaceuticals. Fortunately, cartels are inherently unstable. Many of the problems of cartel stability are related to trust. For a cartel to be formed, each participant must trust its cartel partners not to do two things: cheat on the agreement by charging less than the fixed price, or tell antitrust authorities about the cartel. In our article we will try to place all the methods of distinguishing cartels from cross-licensing arrangements between competitors. It is very important to know about cartels and cross licensing arrangements in the competitive world. Cross licensing is legal where as Cartels are legal and illegal both, in Cross licensing there is no such strict requirement of trust but in Cartels trust is required among the members of the cartel. There are two methods for competitors to expose their business and earn profit in case of IP related transactions. Several developed countries have separate laws which are specifically applied to Cartels but in India there is no such law it is governed under the Competition Act.

February 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling

Posted by D. Daniel Sokol

Linda Gratz, Max Planck Institute for Intellectual Property and Competition Law, Ludwig Maximilians University of Munich - Munich Graduate School of Economics (MGSE) provides an Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling.

ABSTRACT: In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigations. We find that the rule of per se legality induces maximal collusion among settling companies and therefore yields the lowest consumer welfare compared to alternative rules. While under the rule of per se illegality settling companies are entirely prevented from colluding, under the rule of reason they collude to a limited degree when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases settling parties' profits, and thus fosters generic entry. Alternative incentive devices to foster generic entry, for instance, the provision of an exclusivity right to first generic entrants, as implemented within the Hatch-Waxman Act of 1984, are shown to be ineffective.

February 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Competitive Effects of Exchanges or Sales of Airport Landing Slots

Posted by D. Daniel Sokol

James D. Reitzes, The Brattle Group, Brendan McVeigh, The Brattle Group, Nicholas Powers, The Brattle Group and Samuel Moy, The Brattle Group study Competitive Effects of Exchanges or Sales of Airport Landing Slots.

ABSTRACT: We investigate the competitive effects of exchanges or sales of airport landing slots. In our model, airlines with potentially asymmetric slot allocations must decide upon which routes to use their landing slots. When all airlines serve the same routes in a slot-constrained Cournot Nash equilibrium, small changes in slot allocations among airlines do not affect the overall allocation of slots across routes or air fares. In a symmetric equilibrium where slot holding airlines have the same number of slots, we find that an increase in the number of slot-holding airlines leads to higher social welfare and consumer surplus, although the number of served routes may decline. Under asymmetric slot allocations, larger slot holders serve "thin" demand routes that are not served by smaller slot holders. In this situation, transfers of slots from larger to smaller slot holders increase social welfare and consumer surplus, even though fewer routes may be served. More generally, our results suggest that increases in slot concentration are harmful to consumers and social welfare, although consumers on relatively thin routes may gain air transportation service as a result.

February 27, 2012 | Permalink | Comments (0) | TrackBack (0)

Convergence and Its Discontents: A Reconsideration of the Merits of Convergence of Global Competition Law

Posted by D. Daniel Sokol

Thomas Cheng (University of Hong Kong Law) explores Convergence and Its Discontents: A Reconsideration of the Merits of Convergence of Global Competition Law.

ABSTRACT: This Article examines the recent phenomenon of the convergence of competition law regimes across the globe. The increasing harmonization of competition law, at both the procedural and substantive levels, has been widely discussed and applauded in recent years. This Article casts doubt on the conventional wisdom that convergence necessarily constitutes a positive development in global competition law. After analyzing the causes of the phenomenon, this Article argues that there should be limits to the pursuit of convergence. First, the costs of convergence should not be overlooked. The most important of such costs is the loss of national regulatory prerogative. Second, the multitude of goals that are pursued by different jurisdictions in their competition laws poses serious obstacles to convergence. Finally, the need to incorporate economic development considerations and cultural variations in market behavior further cautions against wholesale harmonization of competition laws.

February 27, 2012 | Permalink | Comments (0) | TrackBack (0)